The wheels of justice appear to have been kickstarted as the criminal and regulatory authorities begin to take action against those implicated in state capture.
For one, the National Prosecuting Authority (NPA) — or, at least, its asset forfeiture unit — is finally taking action against McKinsey and Gupta-linked Trillian Capital Partners. It is reportedly preparing to seize assets worth R1.6‑billion from the two firms over their involvement in an invalid contract with state utility Eskom.
On Wednesday, it was revealed that, as far back as November, the Companies and Intellectual Property Commission (CIPC) had laid criminal charges against consulting firm McKinsey, accounting firm KPMG South Africa and global software company SAP for alleged contraventions of the Companies Act, uncovered by the #GuptaLeaks emails.
The CIPC confirmed this week that it had opened criminal cases with the police against the implicated corporates. The charges follow the CIPC concluding its investigation into whether the three companies had contravened provisions of the Companies Act.
Marilize Jerling, head of corporate and commercial law at VDMA Attorneys, said it was not insignificantfor a company to be found in breach of the Act. “A contravention of the Companies Act … is generally evidence of poor corporate governance and reflects very badly,” she said.
In each case the criminal complaint laid by the CIPC was based on a contravention of section 214(1)(c) of the Companies Act, which relates to false statements, reckless conduct and noncompliance.
Any person convicted of an offence in terms of this section of the Companies Act can be fined or jailed for up to 10 years, or both. By way of comparison, contraventions of every other section (except one) of the Act hold a lesser liability of a fine or 12 months in prison, or both.
But that’s not all. Jerling noted: “Any contravention of the Companies Act … exposes such [a] person to the possibility of civil action being instituted … for any loss or damage suffered by any person as a result of that contravention.”
Iraj Abedian, chief executive of Pan-African Investment and Research, welcomed the CIPC’s move but said the commission should not be selective and opportunistic.
“For years they have done nothing, despite all the high-profile failures of directors such as those on the boards of Africa Bank [and] construction companies caught in collusive conduct, the entire board of Eskom directors such as Ben Ngubane [and] Brian Molefe, [and] SAA chair [Dudu Myeni] and her brazen conduct,” said Abedian.
Last year, the CIPC wrote to the finance minister, informing him that, having served three consecutive terms on the SAA board, Myeni was there illegally and was therefore in contravention of the Companies Act.
“The CIPC needs to discharge their function in terms of the regulatory framework without fear or favour. A whole army of high-profile individuals in private firms and public entities should have been declared delinquent and charged for criminal conduct. Where has the CIPC been all along for nearly 10 years?”
Abedian said a number of other companies and entities should also be charged, including Oakbay, SAA, Eskom, Transnet and the Passenger Rail Agency of South Africa.
“The speed with which they act, and the transparency with which they pursue such individuals, will matter most,” he said. “Up to now, the CIPC has been an accessory to all these corporate crimes — not by commission but by omission.”
The CIPC’s investigation process can either be initiated by a third party or by the commission itself, said Jerling.
The Companies Act also allows for the minister of trade and industry to instruct the commission to probe a particular matter. The CIPC then appoints an investigator, and can bring in an external investigator if required.
The process at the CIPC filters out a lot of the malicious or vexatious complaints that are made against companies. The timeframe of an investigation varies widely and depends on what information is available and the level of co-operation received, Jerling said.
Once an investigation is completed, the CIPC will compile a report. The commission may then excuse any respondent in the complaint where it believes this is justified.
It may also choose not to refer the matter for prosecution at all, if warranted. Otherwise, it can be referred to other regulatory bodies such as the Companies Tribunal or the NPA.
The CIPC told the Mail & Guardian it had “not yet” referred the matter concerning KPMG, McKinsey and SAP to the tribunal and other institutions.
The CIPC explained the contraventions by the three companies as follows:
- KPMG: The CIPC is of the view that KPMG South Africa contravened the Companies Act when it received a R23‑million fee from the South African Revenue Service (Sars) and referred to legal opinions and legal conclusions as if they were opinions of KPMG South Africa in the Sars report. This, the CIPC says, is despite KPMG South Africa knowing that providing legal advice and expressing legal opinions was outside the mandate of the company and the professional expertise of those working on the engagement.
Furthermore, the CIPC says that KPMG South Africa knowingly failed to apply its own risk management and quality controls appropriately.
- McKinsey: The CIPC views the act of McKinsey informing Eskom that Trillian Capital Partners was acting as McKinsey’s subcontractor for a portion of a project, when McKinsey never entered into a formal subcontract with Trillian, as a contravention of the Companies Act.
This week, McKinsey said no new information had emerged from the public reports that changes its understanding of the facts. “When this issue first arose, we launched a comprehensive investigation. We stand by our statement of 17 October 2017, in which we categorically rejected the notion that our firm was involved in any acts of bribery or corruption related to our work at Eskom and our interaction with Regiments or Trillian,” it said.
- SAP: The CIPC says that SAP concluded a contract with CAD House for assistance in procuring a Transnet contract, despite SAP being aware that CAD House was not in the same business environment as SAP. This has led the CIPC to conclude that SAP may have contravened section 214(1)(c) of the Companies Act read with a section of the Prevention and Combating of Corrupt Activities Act.
In response, SAP said it had initiated contact with the Hawks in November and would continue to work with all authorities regarding the investigation.